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Thursday, December 26, 2013

Drastic year of decade for automobile sector

The decade's worst slowdown in terms of sales has knocked the wind out of the automobile sector this year. However, auto companies are fighting hard to stay afloat with production cut, reduction in staffing requirements and costs, along with opening up of new markets and increased localization. Maruti Suzuki has embarked on a rural mission. Sales in the hinterland grew by over 20% in 2013, making up almost a third of overall volumes. It has a plan to reach out to 1 lakh villages. Volkswagen has added new markets such as Malaysia, Mexico and Taiwan to make up for the downturn in the domestic market. It is also reviewing its India investment plans.

Toyota Kirloskar has opted for production holidays for eight days in a month, and now operates its plant on a single shift. Mahindra & Mahindra and Tata Motors have had to develop a new family of petrol engines, with diesel-run vehicles making up for over 95% of their total sales.

Meanwhile, Hyundai Motor India has introduced production flexibility between domestic and overseas market depending on demand. "These are by far, the most challenging times I have seen in my career. We have had to make some quick moves," says Rakesh Srivastava, senior VP, sales & marketing, Hyundai Motor India.

Earlier in the year, the company pushed volumes in the overseas market to make up for a slowdown in India. The production was recalibrated to meet the subsequent demand in the domestic market. Due to the flexibility in the manufacturing lines and engine plant, it has been able to shift between petrol and diesel or even domestic and overseas markets with ease, adds Srivastava.

Automakers have been crippled from various ends. Post the diesel deregulation, prices have gone up by 11 times, leading to a cumulative increase of Rs 6.62 since January. Besides this, a 3% increase in excise duty on utility vehicles in the budget hit the segment hard. Growth of over 50% in fiscal 2013 had dropped to just 3% in April to November. The rupee depreciation has compelled them to increase prices, affecting consumer sentiment. High interest rates and fuel price hikes have failed to act as buffer. Deep discounts and freebies have not perked up sales either. This fiscal, sales of Tata Motors' dipped by 35%, M&M's by 13%, Nissan by 43%, Toyota by 23% and Skoda by 42%.

However, things are slightly better for the resilient two-wheeler industry, with sales growing at a modest 3%. Between 2008-09 and 2012-13, production capacity across companies has grew to 4.9 million units from 1.93 million units, with the number of models in the mass segment going up to 21 from 12. Over the past nine months, there have been over 10-15 block closures across factories and 75 to 80 no-production days to align production to demand, according to industry estimates. Several thousand contract workers have been laid off from Maruti Suzuki, Mahindra & Mahindra and Ashok Leyland . While companies like Ford, Maruti Suzuki and Honda braved this with a capacity expansion investment over Rs 9,000 crore, forthcoming projects are getting delayed.

Still, auto companies are doing the best they can to pump in some life into operations. On its part, M&M preferred to lose market share and volumes and remain financially viable, says Pawan Goenka, ED, auto and farm equipment sector. Along with companies like Tata Motors and Maruti Suzuki, it is also investing heavily in new product development.

"It is critical to invest in new product development as product life cycles are getting shortened," says Ajay Srinivasan, head, Crisil Research. In this tough market, only those with new products to show have been somewhat insulated. The compact sedan Amaze has helped Honda post over 50% growth this fiscal. EcoSport did the same for Ford in India while the Grand i10 brought in the much needed volumes to help Hyundai meet its target for 2013.